Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street
By Neil Barofsky
(Free Press, 270 pages, $26)
Neil Barofsky can be forgiven a little posturing. Early on in his short stint as Special Inspector General for TARP -- the bank bailouts -- he realized that he had no choice but to set aside bureaucratic caution and seize the mantle of whistleblower and reformer.
Barofsky, who before receiving an appointment from the Bush administration had spent his career prosecuting mortgage fraudsters and drug runners, makes it clear he didn't set out to rock the boat. It was only after he realized how completely Wall Street had captured the regulatory system in Washington that he discerned that there would be no way for him to fulfill his oversight role without being harshly critical of the establishment.
A Democrat, Barofsky is as unsparing of the Obama administration for its handling of TARP as he is of the Bush team. He faults Bush appointees, including Treasury secretary Hank Paulson and TARP "czar" Neel Kashkari (both alumni of Goldman Sachs), for ladling out hundreds of billions of dollars to Wall Street banks and automakers without concern for the interests of taxpayers or consumers. But Barofsky takes special care to document the failures of current Treasury Secretary Tim Geithner in his mismanagement of the bank bailouts, his bungled administration of a program to help distressed homeowners, and his role in deforming the Dodd-Frank Act.
Barofsky's everyman account of the pervasive cynicism and insider-dealing of the D.C. establishment is the key to Bailout.The book isn't intended to be a comprehensive narrative of the crisis and bailouts. Barofsky gives only a cursory explanation of the banking sector's collapse. He doesn't ever fully engage with the best arguments in favor of TARP, especially the broader case that TARP, whatever its shortcomings, prevented the country from entering a second Great Depression. Nor does Barofsky devote much space to the strongest counterarguments to that claim.
Instead, Barofsky focuses on reporting the shortcomings of Geithner et al. Barofsky claims to have been surprised by the self-interestedness he encountered, and readers of his book surely will be as well. He depicts government officials as, apart from a handful of constantly thwarted good guys, devoted to sharing taxpayers' spoils with friends.
In telling his story, Barofsky bumps up against a few uncomfortable facts, ones he doesn't fully acknowledge or pursue. One is that his best allies in government were Republicans, specifically Iowa senator Chuck Grassley and Rep. Darrell Issa of California, both of whom helped Barofsky expose mismanagement and abuse of bailout money. Although Republicans have every incentive to discredit the Obama administration, nevertheless their willingness to help when congressional Democrats wouldn't cuts against the prevailing narrative concerning Republicans' relationship to Wall Street. On the other hand, Barofsky's kindest words are reserved for liberal darling and aspiring Democratic senator Elizabeth Warren, who was working in an oversight role at the time.
The most uncomfortable fact, though, is Barofsky's portrayal of Tim Geithner as, simply, the bad guy -- almost pathologically anti-accountability and pro-Wall Street. Barofsky's treatment of the man who appointed Geithner, President Obama, is particularly awkward. Obama plays only a minor role in the story, but his presence is always looming behind each of Geithner's many misdeeds.
Geithner is a tough character to explain. Unlike any other of the regulators Barofsky criticizes, Geithner didn't come from Wall Street. He is a career bureaucrat, having started at the Treasury Department and worked his way up the ladder, eventually being named president of the New York Fed just before the crisis hit. Yet he's widely perceived as being closely connected to Wall Street. In August of 2010, the New York Times even ran an article about Geithner's struggles to correct the persistent misapprehension that he worked at Goldman Sachs.
Geithner was also an oddball among President Obama's inaugural economic team: National Economic Council head Larry Summers, Council of Economic Advisers chair Christina Romer, and Office of Management and Budget director Peter Orszag were all chosen for their academic brilliance. Geithner was chosen because he was already familiar with the crisis that was still unfolding during early 2009. Nevertheless, Geithner is the only member of the original team still in office today: Summers and Romer long ago returned to academia, while Orszag walked through the revolving door to a cushy job at Citigroup.
Barofsky's first experiences with the newly installed Geithner were "unsettling": Geithner called a meeting of Treasury officials and lectured them on interactions with the press, "as if he was angry with us." Geithner's attitude toward Barofsky's efforts was "utterly dismissive." The best anecdote in the book comes when Barofsky confronts Geithner for a lack of transparency in disbursing TARP funds. "Neil, I have been the most f--king transparent secretary in the history of the Treasury in this country's entire f--king history!" Geithner screamed.
Personnel is policy: if a Republican president appoints the former CEO of Goldman Sachs to be Treasury secretary, it should be no surprise that this appointee would literally get down on one knee and beg the Speaker of the House to bail out the banks on terms favorable to them.
Obama, however, campaigned against the influence of special interests, and appointed a technocrat to the Treasury. Perhaps Geithner will take a top job on Wall Street after he steps down early next year. Doing so would explain a lot about his motivations. Otherwise, Obama might be left to wonder how he ended up with such a weak record on the banks.